Calculating "Downgrade"
2nd Quarter 2025 Commentary • Kori Allen, CFP®
In a recent economic and market update, a well-regarded analyst described a negative consequence as a “mathematical downgrade.” This description seemed unusual—and not only because everything we do involves math.
The U.S. market, as defined by the S&P 500, was deemed overvalued earlier in the year and is again, currently. One of the ways over or undervaluation is expressed is the ratio between the price of one stock share and the company’s expected earnings per share. This number is called the price to earnings ratio, or P/E ratio. Over time, a company’s share price appreciates at the rate of their earnings growth. The greater the expected growth, the higher the P/E. The S&P 500 price to earnings ratio is the average P/E of all the stocks that constitute it. All math.
When planning for our clients’ future, our foundation is a snapshot of net worth and cash flow: assets, liabilities, income and expense. After identifying goals, we then estimate the cost of those goals, the timing of any withdrawals, and projected growth of the portfolio alongside expected inflation rate. More math.
We entered 2025 with expectations that the U.S. stock market would not produce the stellar returns it has in the recent past. One reason for these stellar returns was the extraordinary economic growth and stability attained in the last few years. Also of note was the dominance of U.S. corporations’ artificial intelligence (AI) innovations and development. We believe that because of the outsized attention on AI, those dominating companies had inflated P/Es while competitors outside the U.S. made and continue to make significant gains in this space.
Investment houses determine their expectations for growth or decline annually, and forecasts often hover around a similar number. Coming into this year, one source had the expected growth of the S&P 500 at 7% and the Eurozone at 7.5%. Seeking the best return and value, investor money flows to more favorable risk and potential reward. In this illustration, if all things were equal except the expected return, investors would gravitate towards the Eurozone.
So, back to the analyst’s “mathematical downgrade” description. She was responding to an economic question regarding the current U.S. goals for deportation and detainment, with the following statistics:
Since 2019, immigrants contributed 90% of all U.S. job growth gain.
Immigrants make up 15% [though the following link shows 19%] of the work force.
And there's more. From 2020-2024, the Department of Homeland Security carried out an average of 352,000 deportations a year (of which an annual average of 146,000 were contributed by Immigration and Customs Enforcement or ICE). In the 2024 fiscal year (which began October 1, 2024), ICE had a $9.1 billion dollar budget (Migration Policy Institute, February 2025).
The administration has ordered a minimum of 3,000 immigrant arrests daily (Forbes, June 9, 2025). As of June 14, 2025, nonpublic data shows ICE had booked 204,297 people into detention since the beginning of the fiscal year, October 1, 2024. Of this number, 65% or 133,687 individuals had no criminal convictions. More than 93% of the 204,000 were never convicted of violent offenses. (Cato Institute, June 20, 2025).
In the recent budget reconciliation bill, $45 billion was allocated for detention facilities. This represents a 265% increase and is 62% larger than the entire federal prison system. If these detention facilities were fully utilized, it could result in daily detentions of 116,000 people. For enforcement operations, $29.9 billion has been allocated, a three-fold increase (American Immigration Council, July 1, 2025).
Lastly, according to a recent article in The Economist, the bill provides roughly $170 billion into strengthening the border and increasing deportations. ICE is expected to receive about $75 billion over 4 years. That piece indicated, “David Bier of the Cato Institute reckons that the immigration provisions in the bill will cost $1 trillion more than the Congressional Budget Office suggests.”
While it will take time to digest the scope of this massive bill and its sweeping fiscal ramifications, it doesn’t take much to understand the impact of losing community.
Alongside the ceaseless stream of executive orders are a plethora of economic and financial consequences to incorporate into our work. Another layer to this complexity: we know that a shrinking workforce can be both inflationary and shrink domestic growth. At the same time, we are spending—increasing the US deficit to historic numbers—to shrink that workforce that contributes so much. All this converges with a seemingly overvalued US stock market.
In our data-driven work and capitalistic world, numbers might speak louder than words, values, or morals Aggressively accelerating deportation, detainments and imprisonment of our community members will indeed be a “mathematical downgrade.” Numbers cannot capture what we truly lose.
“We live in capitalism. Its power seems inescapable.
So did the divine right of kings.
Any human power can be resisted and changed by human beings…”—Ursula K. Le Guin
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